## IN THE SUPREME COURT OF TEXAS

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### No. 16-0549

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══════════════════════ ════════════════════ O N P ETITION FOR R EVIEW FROM THE C OURT OF A PPEALS FOR THE T HIRD D ISTRICT OF T EXAS

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J USTICE L EHRMANN , joined by J USTICE J OHNSON , concurring in part and dissenting in part.
When a state appears as a party to a suit, she voluntarily casts off the robes of her sovereignty, and stands before the bar of a court of her own creation in the same attitude as an individual litigant; and he r rights are determined and fixed by the same principles of law and equity, and a judgment for or against her must be given the same effect as would have been given it had it been rendered in a case between private individuals. 1 Over a decade ago, we considered “whether sovereign immunity continues to exist when an affirmative claim for relief is filed by a governmental entity.” Reata Constr. Corp. v. City of Dallas , 197 S.W.3d 371, 376 (Tex. 2006) . We determined that “under such circumstances immunity from suit no longer completely exists for the governmental entity.” Id. (citing State v. Humble Oil & Ref. Co. , 169 S.W.2d 707, 708 (Tex. 1943)). This is because our modern jurisprudence rejects the “antiquated ‘feudal fiction’” th at the government can do no wrong.

1 State v. Cloudt , 84 S.W. 415, 416 (Tex. Civ. App. 1904, writ ref’d).2 Brown & Gay Eng’g, Inc. v. Olivares , 461 S.W.3d 117, 121 (Tex. 2015) (quoting Wichita Falls State Hosp. v. Taylor , 106 S.W.3d 692, 695 (Tex. 2003)). Rather , “modern-day justifications” for immunity “revolve around prot ecting the public treasury.” Id. Consistent with these policies, we have narrowed the doctrine’s scope in circumstances where “the governmental entity has joined into the litigation process by asserting its ow n affirmative claims for monetary relief,” Reata , 197 S.W.3d at 376, because it would be “fundamentally unfair to allow [a governmental entity] to assert affirmative claims against [a] party while claiming immunity” as to the party’s claims against it, City of Dallas v. Albert , 354 S.W.3d 368, 379 (Tex. 2011). In this case, the State file d suit under the Texas Medicaid Fraud Prevention Act (Medicaid Fraud Act or Act), alleging that the defendants, several dental providers offering services through the Texas Medicaid program, fraudulently obtained Medicaid reimbursements. In filing suit, the State sought to recover any payments unlawfully provided under the Medicaid program; prejudgment interest; two times the amount of any payment provided under the Medicaid program; civil penalties; and expenses, costs, and attorney’s fees, as provided by the Act’s “civil remedies” provision. See T EX
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. C ODE § 36.052(a). The Providers counterclaimed for breach of contract, conversion, and fraud. The issue before the Court is whether sovereign immunity bars the Providers’ counterclaims. Because the State seek s “monetary relief” under
Reata , I would hold that the State’s decision to file this action “encompassed a decision to leave its sphere of immunity from suit.” Reata , 197 S.W.3d at 377. Because the Court holds otherwise, I must respectfully express my dissent. 2

2 For the reasons the Court explains, I agree that we la ck interlocutory jurisdiction to address the dismissal of the Providers’ third-party claims.3 I. Background In 1993, the mothers of children in low-income families sued the Texas Department of Health and the Texas Health and Human Servi ces Commission under 42 U. S.C. § 1983, alleging that the Texas Medicaid program di d not comply with federal law. 3 The plaintiffs, a class of more than 1.5 million indigent children in Texas, claimed that “the Texas program did not en sure eligible children would receive health, de ntal, vision, and hearing scr eens,” “failed to meet annual participation goals,” and “lacked proper ca se management and corrective procedures.” 4 The State ultimately agreed to settle the dispute by entering into a consent decree, which required the State, among other things, “to conduct outr each efforts aimed at increasing participation and the receipt of needed services” for Medicaid-eligi ble children. 5 After years of litig ation, in 2007 the State began allocating millions of dollars in state and federal funding to provide these increased services, including Medicaid dental services. 6 However well-intended, these efforts attracte d the scrutiny of Texas news media, and a Dallas news station reported a series of stories hi ghlighting the State’s high expenditures for dental and orthodontic services. 7 The Health and Human Services Commission, through its Office of Inspector General, subsequently attributed the high expenditures to dental fraud. The Commission imposed payment holds against various dental provi ders, including some of the Providers in this

3 Frew ex rel. Frew v. Hawkins , 540 U.S. 431, 434 (2004).
4 Frew v. Gilbert , 109 F. Supp. 2d 579, 587 (E.D. Tex. 2000), vacated sub nom. Frazar v. Gilbert , 300 F.3d 530 (5th Cir. 2002), rev’d sub nom. Frew ex rel. Frew v. Hawkins , 540 U.S. 431 (2004).
5 Id. at 588–89.
6 See Act of May 25, 2007, 80th Leg., R.S., ch. 1429, § 19, 2007 Tex. Gen. Laws 5834, 5838–39.
7 See, e.g. , Byron Harris, Crooked Teeth: Medicaid Millions , WFAA (Jan. 9, 2012 1:10 PM CST), http://www.wfaa.com/news/local/investigates/crooked- teeth-medicaid-millions_20161017055833341/336726628.4 case. 8 Following administrative hearings, 9 the SOAH administrative law judges found that the State had failed to present prima facie evidence to support its fraud allegati ons and ruled that the payment holds should be reversed. 10 But the Commission refused to release the funds, in one case “alter[ing] the ALJs’ findings of fact and conclu sions of law and issu[ing ] a final order sustaining the HHSC-OIG’s payment hold.” 11 The Providers filed suit, chal lenging the Commissioner’s author ity to continue holding the funds. 12 The trial courts agreed with the Providers, in one case reversing the final order sustaining the payment hold and, in another, issuing a writ of mandamus commanding the State to pay the improperly held funds. 13 The courts of appeals affirmed the trial courts’ judgments in the paymenthold proceedings, ordering the State to release the held funds. 14 The State nonsuited the administrative cases and did not release the withheld funds to the Providers.

8 See Tex. Health & Human Servs. Comm’n v. Antoine Dental Ctr. , 487 S.W.3d 776, 777–78 (Tex. App.— Texarkana 2016, no pet.); Janek v. Harlingen Family Dentistry, P.C. , 451 S.W.3d 97, 99 (Tex. App.—Austin 2014, pet. denied).
9 A provider subject to a payment hold, which the Commission may impose without prior notice on a provider’s Medicaid reimbursements upon a credible allegation of provider fraud, may request an expedited administrative hearing before the Stat e Office of Administrative Hearings. Shamrock Psychiatric Clinic, P.A. v. Tex. Dep’t of Health & Human Servs. , 540 S.W.3d 553, 555 (Tex. 2018) (citing T EX
. G OV ’ T C ODE § 531.102(g)(2), (3)).
10 Antoine Dental Ctr. , 487 S.W.3d at 778, 789; Harlingen Family Dentistry , 451 S.W.3d at 102.
11 Antoine Dental Ctr. , 487 S.W.3d at 778, 791 (“Subsequently, [the HHSC Executive Commissioner] entered a final order on May 2, 2014, which also rejected the ALJs’ decision. The order was presumably made under authority of Section 357.483 of the Texas Administrative Code, which states, ‘The judge is a designee of the HHSC Executive Commissioner for purposes of: (1) issuing default, final, and other orders, and (2) ruling on any motions for rehearing.’”).
12 Id. at 778; Harlingen Family Dentistry , 451 S.W.3d at 99.
13 Harlingen Family Dentistry , 451 S.W.3d at 104; Antoine Dental Ctr. , 487 S.W.3d at 802.
14 Harlingen Family Dentistry , 451 S.W.3d at 104 (“There is no evid ence that is credible, reliable, or verifying, or that has indicia of reliability, that [t he providers] committed fraud or misrepresentation.”); Antoine Dental Ctr. , 487 S.W.3d at 804.5 The State filed the instant suit under the Medica id Fraud Act, pursuing the same allegations at issue in the nonsuited administrative cases. 15 The Providers responded with counterclaims for “proportional recovery of actual an d exemplary damages, interest, c ourt costs, and attorney fees against the State” for conspiracy and breach of c ontract, in addition to a demand that the State release the monies held as orde red by the administrative law judge s, trial courts, and courts of appeals in the nonsuited administrative proceedi ngs. The State invoked sovereign immunity in a plea to the jurisdiction. The trial court granted the Stat e’s plea without stating its re asons. The court of appeals affirmed, holding that the Reata rule did not apply because (1) “the civil penalt ies that the State is seeking against the Dental Groups do not qualify as damages or monetary relief as those terms were used in Reata ,” and (2) “when the State pursues an enforcement action under the [Medicaid Fraud Act], it is not acting as an ordinary or privat e litigant as described in Reata but is instead acting in its sovereign capacity and exercisi ng its police powers.” 497 S.W.3d 169, 181 (Tex. App.—Austin 2016) (emphasis removed). II. Analysis The Providers contend that this case fits perfectly within our Reata holding: because the State asserted affirmative claims for monetary relief against the Providers, it does not have immunity against the Providers’ offsetting coun terclaims, which are connected, germane, and properly defensive to the State’s claims. The St ate disagrees, arguing that in this Medicaid fraud

15 The State also filed a separate suit against Xerox Corporation, the private contractor charged with administering the Texas Medicaid program and assessing the medical necessity of providers’ reimbursement claims, for violations of the Medicaid Fraud Act. See State v. Xerox Corp. , No. D-1-GV-14-000581 (53rd Dist. Ct., Travis County, Tex. May 9, 2014).6 (or any other) enforcement action, (1) the State does not seek the type of “monetary relief” we addressed in Reata , (2) the State does not appear as an “ord inary litigant,” and (3) the defendants’ counterclaims are not and cannot be connected, germane, and prop erly defensive to the State’s claims. The Court sides with the State, holding that “the Reata rule . . . never applies when the state initiates litigation to en force a substantive prohibition against unlawful conduct by imposing a monetary penalty.” Ante at ___. And, relying on our decision today in In re Xerox , ___ S.W.3d ___ (Tex. 2018), the Court holds that because the Medicaid Fraud Act “employs a penalty scheme,” the Act’s civil remedies provision cons titutes a monetary penalty and thus may not be offset. Ante at ___. I find the Court’s analysis unpersuasive. A. Judicial Abrogation of Immunity In analyzing the reach of sovereign immun ity, we must engage in a careful weighing analysis and consider the policy issues at hand. See, e.g. , Olivares , 461 S.W.3d at 123 (“Guiding our analysis of whether to extend sovereign immun ity . . . is whether doing so comports with and furthers the legitimate purposes that justify th is otherwise harsh doctrine.”). These policy considerations led us to permit offsetting counterclaims against the government because: “(1) ‘when the State sues a private party, the ge neral public stands to lo se nothing’; (2) doing so avoids ‘jurisdictional problems in asking courts to enforce a judgment against a government entity’; and (3) allowing such [claims] promotes ‘fundamental fairness.’” C. Borunda Holdings, Inc. v. Lake Proctor Irrigation Auth. of Comanche Cty ., 540 S.W.3d 548, 552 (Tex. 2018) (quoting City of Galveston v. State , 217 S.W.3d 466, 472 (Tex. 2007)). Prope rly applying these principles, I would hold that Reata , its predecessors, and its progeny dict ate that the State’ s claims under the Medicaid Fraud Act constitute affirmative claims for monetary relief; the Providers’ counterclaims7 are germane, connected, and defensive to those cl aims; and allowing the Pr oviders to offset the State’s recovery with their counterclaims co mports with the policies underlying immunity.
B. Reata ’s Scope
In Reata , the City of Dallas intervened in a pendi ng tort action and asserted claims that the city’s contractor and its subcont ractor negligently caused the city damages when the subcontractor accidentally drilled through a water main. 197 S.W.3d at 373. The State distinguishes Reata , noting that, in this case, the State is not seeki ng compensatory damages under a conventional tort theory. Instead, the State contends , although this is a civi l case, it is a “law-enforcement action” seeking statutory “sanctions” or “penalties,” or perhaps “li quidated damages” (as opposed to compensatory damages), which are not based or calculated on the amount of damages or losses the State suffered as a result of the Providers’ fraud. The court of appeals agreed, concluding that th e State sued for a “civil penalty” to “punish” the Providers for violating a public-welfare statut e and to deter others from doing the same. 497 S.W.3d at 179. The court of appeals primarily relied on State v. Emeritus Corp. , 466 S.W.3d 233 (Tex. App.—Corpus Christi 2015, pet. denied), in which the court held that the Texas Medical Liability Act did not apply to the State’s enforcement action against a healthcare provider because the State was acting “in its sove reign capacity and us[ing] its po lice powers to impose and recover a civil penalty,” rather than as a “claimant” seeking “damages.” 497 S.W.3d at 179–80. The court of appeals here concluded that “the civil penalt ies that the State is se eking against the Dental Groups do not qualify as damages or monetary relief as those terms were used in Reata. ” Id. at 181.8 The Providers argue that the court of appeals erred in that conclusi on because, other than its claim for an injunction, all of the State’s cl aims in this suit are for “monetary relief.” Specifically, the Medicaid Fraud Act authorizes, and the State request s in its pleadings, a monetary award including (1) the “amount of any payment” th e State made “as a result of” each “unlawful act”; (2) prejudgment interest on that amount; (3) a “civil penalty” for each unlawful act; and (4) two times “the amount of any payment” made as a result of an unlawful act. See T EX
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. C ODE § 36.052(a). The Providers argue that, although Reata happened to involve tort claims for compensatory damages, our holding was not limite d to those types of claims seeking that type of monetary relief. The court of ap peals thus created a “distinction that Reata neither contemplates nor supports.” I agree with the Providers. The C ourt superficially states that “ Reata uses the word ‘damages’ more than a dozen times,” concluding th at “[t]his usage indicates that we decided the case based on the narrow theory of damages rather th an the broad theory of a transfer of funds.”
Ante at ___. Admittedly, a word search for the term “damages” reveals that we used the word thirteen times throughout the opinion, but the majority of the references are not relevant to the issue before us. 16 As relevant to the Court’s analysis, we referred to the City’s claim for “damages” four times in Reata , noting that the City had sued for da mages and reasoning that the City’s

16 For example, two of the references appear in a di scussion of the United States Supreme Court’s sovereign immunity jurisprudence. Reata , 197 S.W.3d at 375 (“The United States Supreme C ourt has also recognized that suits for money damages against states ‘may threaten the financial integrity of the States’ and that ‘at the time of the founding, many of the States could have been forced into insolvency but for their immunity from private suits for money damages.’” (quoting Alden v. Maine , 527 U.S. 706, 750 (1999))). One reference is contained in a recitation of our often-repeated principle that “[s]overeign immunity protects the State from lawsuits for money damages.” Id. at 374. Similarly, two references describe the relief sought by the private party, not the State. Id. at 377 (“Absent the Legislature’s waiver of the City’s immunity from suit, however, the trial court did not acquire jurisdiction over [the defendants’] claim for damages against the City in excess of damages sufficient to offset the City’s recovery, if any.”). And four of the references appear under the Court’s analysis of waiver of immunity under the Texas Tort Claims Act, which is wholly separate from the abrogation issue. Id. at 377–78.9 decision “to file suit for damages encompassed a decision to leave its sphe re of immunity from suit for claims against it which are germane to, c onnected with and properly defensive to claims the City asserts”; that sovereign immunity did not apply to the subcon tractor’s counterclaims “made against the City which were connected to, germane to, and properly defensive to the matters on which the City based its claim for damages”; a nd that “the City’s a ssertion of claims for damages against Reata means that the City does not have immunity from Reata’s claims to the limited extent we have explained.” 197 S.W.3d at 377. We referred once to “monetary damages,” reasoning that, “if the governmental entity interjects it self into or chooses to engage in litigation to assert affirmative claims for monetary damages, the entity will presumably have made a decision to expend resources to pay litigation costs.” Id. at 375. But our discussion and our holding in Reata utilized much broader terms. Addressing not just the City’s claims but the principles underl ying our holding, we referred twice to claims for “monetary relief.” First, we reasoned that “w here the governmental entity has joined into the litigation process by asserting its own affirmative clai ms for monetary relief, we see no ill befalling the governmental entity or hamper ing of its governmental functions by allowing adverse parties to assert, as an offset, claims ge rmane to, connected with, and prope rly defensive to those asserted by the governmental entity.” Id. at 376–77. Second, we held that because “the City asserted affirmative claims for monetary relief against Reata, the City does not have immunity from Reata’s claims germane to, connected to, and properly defensive to claims asserted by the City, to the extent any recovery on those claims will offs et any recovery by the City from Reata.” Id. at 378. We referred once to “monetary recovery,” explaining that, once the government “asserts affirmative claims for monetary recovery, the City must participate in the litigation process as an10 ordinary litigant.” Id. at 377. And, most broadly, we referred three times simply to the government’s “recovery.” We reasoned that our ho lding would not disrupt the government’s fiscal planning if “the opposing party’s claims can operate only as an offset to reduce the government’s recovery.” Id. at 375. We further held that immunity would still preclude jurisdiction over any counterclaim “for damages against the City in exce ss of damages sufficient to offset the City’s recovery.” Id. at 377. Finally, we concluded that the Ci ty did not have immunity “to the extent any recovery on [the counterclaims] will offset any recovery by the City from Reata.” Id. at 378. We have since characterized Reata ’s holding by using the broade r terms, explaining that governmental entities “do not have immunity from offsetting claims germane to, connected to, and properly defensive to monetary claims by the entities.” Albert , 354 S.W.3d at 376 (emphasis added). 17 And more recently, we described Reata as holding that “when a governmental entity asserts claims for monetary relief , immunity does not protect the entity against the defendant’s counterclaims for monetary relief that are ‘germane to, connected with, and properly defensive to’ the government’s claims.” Borunda , 540 S.W.3d at 549–50 (em phasis added) (quoting Reata , 197 S.W.3d at 376–77). In both of these cases, we described Reata ’s holding as broadly addressing the State’s claims for monetary “recovery.” Accordingly, I agree with the Providers that the language we used in Reata did not limit our analysis or our holding to government claims for “compensatory damages,” but instead rested more broadly on the government’s claims seeking a “monetary recovery.” However, as the Court

17 See also City of Dallas v. Martin , 361 S.W.3d 560, 561 n.4 (Tex. 2011) (“In Reata we held that a governmental entity does not have immunity from monetary claims against it that are ‘germane to, connected with, and properly defensive to’ affirmative claims made by the entity, to the extent the claims against the entity offset the entity’s claims.”); City of Irving v. Inform Constr., Inc. , 201 S.W.3d 693, 694 (Tex. 2007) (“As we explained in Reata , however, the City retains immunity from suit . . . to the extent Inform’s damages exceed amounts offsetting the City’s monetary recovery.”).11 observes, Reata involved only claims for compen satory damages, and neither Reata nor any of our subsequent cases specifically address the distincti on between the broader and narrower terms. In other words, this is an issue of first impressi on, and it may just be, as the State and the Court suggest, that we used the broader terms merely as convenient references to the compensatorydamage relief the government was seeking in those cases, rather than to limit the State’s immunity when it seeks any form of moneta ry recovery. I would reject th at suggestion, however, primarily for two reasons. First, although Reata involved only claims for compensa tory damages, the cases on which we relied to s upport our holding in Reata did not. Anderson, Clayton & Co. v. State , the case that provided the foundation for our Reata holding, was an enforcement action in which the State sought “recovery of penalties” ag ainst a trucking company operati ng without a license. 62 S.W.2d 107, 107 (Tex. 1933). We held that the defendant c ould maintain a counterc laim against the State in that case, reasoning that the State, having invoked the jurisdiction of the district court . . . for a judicial determination of the question as to whether the defendant s were subject to the provisions of the foregoing act and liable for the penalties described therein, it became subject to the same rules as other litigants, except in so fa r as such rules may be modified in favor of the state by statute or may be ina pplicable or unenforceable because of exemptions inherent in sovereignty. . . . That court at the instance of the state acquired jurisdiction of the parties and subject-matter in c ontroversy, and, the defendants having sought affirmative relief in a cross-bill, the jurisdiction of the court cannot afterwards be defeated by the state upon a plea that the crosspetitioners were seeking an injunction against the enforcement of a penal statute.
Id. at 110 (emphasis added). The Court attempts to limit Anderson, Clayton , reasoning that although the State sought “recovery of penalties,” the defendants sought only an injunction, not money damages, in their counterclaim. Ante at ___. But the Court give s short shrift to our12 language in that case. In de termining that sovereign immun ity did not bar the defendants’ counterclaims, we identified two guiding rules: The authorities sustain the exception to the foregoing rule that the state’s immunity from suit does not extend to a suit agains t state officers to enjoin the enforcement of an invalid law to the injury of the legal rights of a citizen. But the authorities sustain the further rule that, where a state voluntarily files a suit and submits its rights for judicial determination, it will be bound thereby, and the defense will be entitled to plead and prove all matters properly defensive. This includes the right to make any defense by answer or cross-complaint germane to the matter in controversy. Anderson, Clayton & Co. , 62 S.W.2d at 110 (citations omitted) (emphases added). Dismissing the “rule” that a defendant is entitled to plead and prove all matters properly defensive, the Court concludes that the decision “establishes little” in resolving this case. Ante at ___. In addition to sidestepping that language, the C ourt ignores the fact that in Anderson, Clayton we expressly rejected the argument that the State’s immunity could hinge on the “penal” nature of the statute being enforced, 62 S.W.2d at 108, a justification the Cour t relies on today. Fu rther, the Court’s reliance on the nature of th e relief requested in the counterclaims is novel and misplaced. So long as the counterclaims are germane, connected, an d properly defensive to the government’s claims and do not seek more than is required to offset those claims, they are permitted under Reata . 197 S.W.3d at 377.
In Reata , we also relied on our decision in Humble Oil , which involved the State’s action to recover unpaid producti on taxes “plus interest and penalties. ” 169 S.W.2d at 708 (emphasis added). We held in Humble Oil that the defendant could not asse rt offsetting counterclaims based on alleged overpayments in other tax periods. Id. at 710. However, c ontrary to the Court’s description, we did not ba se that holding on the na ture of the State’s affi rmative claims. Rather,13 Humble Oil ’s result rested on the fact that the defenda nt’s counterclaims involved taxes due for different months and years than the taxes on whic h the State had sued, and thus the counterclaims were not “dependent upon” or “connected with” the State’s affirmative claims. Id. Moreover, we affirmed that we had “no fault to find with the rule of law announced in the Anderson, Clayton &
Co. opinion, when applied in a proper case.” Id. at 709. Because we based our decision in Reata on these seminal cases, it is no surprise that we referred broa dly to government claims for “monetary relief” and “monetary recovery” in Reata , even though Reata itself involved only claims for compensatory damages. Consistent with my reading of Reata ’s scope, several courts of appeals have applied Reata in cases involving government claims for moneta ry relief other than co mpensatory damages, including penalties, yet the Court neither cites, discusses, nor overrules those cases. For example,
in Bandera County v. Hollingsworth , the San Antonio Court of Appeals held the County was not immune from a counterclaim for breach of a Rule 11 agreement where the underlying suit involved the State’s claim for “taxes due, together with in terest, penalties, costs, expenses, and attorney’s fees.” 419 S.W.3d 639, 642–44 (Tex. App.—San Antonio 2013, no pet.). Similarly, in Redburn
v. Garrett , the City brought, among other claims, “an en forcement action for st atutory penalties in the amount of $5,000 per day pursuant to Chapter 54 of the Texas Local Government Code.” No. 13-12-00215-CV, 2013 WL 2149699, at *2 (Tex. App.—Corpus Christi, May 16, 2013, pet. denied) (mem. op.). Despite the inclusion of pena lties in the monetary re lief sought, the Corpus Christi Court of Appeals applied Reata , holding that the City did “not have immunity from suit for claims germane to, connected with, and properly defensive to its [cross-claims] to the extent [appellant’s] claims act as an offset against the City’s recovery.” Id. at *10 (quoting Inform14 Constr. , 201 S.W.3d at 694). And in City of Conroe v. TPProperty LLC , the city sought judgment against the defendant for “unpaid taxes, and statutor y penalties, attorneys’ fees, and court costs.” 480 S.W.3d 545, 564 (Tex. App.—Beaumont 2015, no pet. ). Without distinguishing between any of these forms of monetary rec overy, the Beaumont Court of App eals compared the city’s and the defendant’s claims, concluding that they “arise from the same tran sactions” and “rely on the trial court’s resolution of similar disputed facts.” Id. Accordingly, the Court held that the city was not immune to the extent the defendant’s “claims act as offsets to the City’s [claims].” Id. (citing
Reata , 197 S.W.3d at 376–77). As these cases illustrate, no thing in the language of Reata , its predecessors, or its proge ny indicates that the Reata rule applies only when the government seeks to recover “damages” or “compensatory damages.” In addition to the absence of language in Reata and its predecessors indicating that the type of monetary recovery sought informs the offsetanalysis, the policies underlying the sovereignimmunity doctrine do not support th e limitation the Court adopts. C onsistent with our holdings in Anderson, Clayton and other earlier cases, we explained in Reata that our “determination that a governmental entity’s immunity from suit does not extend to a situation where the entity has filed suit is consistent with the polic y issues involved with immunity.” 197 S.W.3d at 375. And “the primary concern in Reata was ensuring that any outcome in favor of a counterclaiming defendant would not be paid with taxpayer dollars.” Borunda , 540 S.W.3d at 552. That is because the purpose of sovereign immunity is to “shield the public from the costs and consequences of improvident actions of their governments.” Hall v. McRaven , 508 S.W.3d 232, 238 (Tex. 2017) (quoting Tooke v. City of Mexia , 197 S.W.3d 325, 332 (Tex. 2006)); see also Olivares , 461 S.W.3d at 123 (considering “the general purpose of protec ting the public fisc”). We thus limited the scope15 of immunity when the government files claims for monetary relief because, “if the governmental entity interjects itself into or chooses to engage in litigation to assert affirmative claims for monetary damages, the entity will presumably have made a decision to expend resources to pay litigation costs.” Reata , 197 S.W.3d at 375. And if “the opposi ng party’s claims can operate only as an offset to reduce the govern ment’s recovery, no tax resources will be called upon to pay a judgment, and the fiscal planning of the govern mental entity should not be disrupted.” Id. Accordingly, the policy reas ons behind our decision in Reata support the broad language we used in that case, as well as the conclusion that Reata ’s holding applies when the government chooses to file a claim for “monetary relief” or “monetary recovery,” not just for “damages” or “compensatory damages,” as the State suggests. And here, the State is undeniably seeking monetary relief. In this circumstance, as in Reata , “the governmental entity has joined into the litigation process by asserting its own affirmative claims for monetary relief.” Id. at 376–77. I therefore “see no ill befalling the governmental en tity or hampering of its governmental functions” in this case by allowing the Providers to assert, as an offset, claims germane to, connected with, and properly defensive to those asserted by the State. Id. Moreover, it is fundamentally unfair to allow the State to assert affirmative claims against the Providers—claims that could result in millions of dollars of recovery—but deny the Providers an opportunity to merely offset that recovery with counterclaims seeking, at a minimum, the release of money that every court to adjudicate th e merits of the case has held to be unlawfully retained by the government. See Borunda , 540 S.W.3d at 553 (citing Reata , 197 S.W.3d at 375– 76 (“[I]t would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the party’s claims against it.”), and Albert ,16 354 S.W.3d at 380 (noting that “h ere we do not see any fundame ntal unfairness or inequity occurring”)). The State has undoubtedly taken a dvantage of its sovere ignty, unsuccessfully pursuing its fraud claims through se veral tribunals, modifying findings and orders in support of its position, and then, faced with court orders to re lease the withheld funds, abandoning its claims only to reappear here and assert immunity. I w ould hold that the St ate’s pursuit of monetary relief under the Medicaid Fraud Act subjected it to the ju risdiction of the Court for offsetting, related counterclaims. “To hold otherwise would permit [the State] to use the cour t in the attainment of [its] object by piecemeal, by first adopting its judgme nt as right, and then repudiating it as wrong, and to avail [it]self of the advantages of its be ing both right and wrong.” See Sec. Trust. Co. of Austin v. Lipscomb County , 180 S.W.2d 151, 158 (Tex. 1944) (cit ation and internal quotation marks omitted). C. The Court’s “Law-Enforcement” Exception The Court ignores the policy a nd jurisprudential concerns di scussed herein, concluding instead that “sovereignty itself remains an impor tant justification for sovereign immunity.” Ante at ___. But as we have already explained, pr otecting the public fisc and public reliance on government services, not fealty to an all-powerful sovereign, underl ie our modern justifications for maintaining the doctrine. Olivares , 461 S.W.3d at 121. Regardless, the Court adopts the State’s view that Reata does not apply here becau se the State is acting in its sovereign “lawenforcement” capacity. According to the Court, Reata “ never applies when the state initiates litigation to enforce a substant ive prohibition against unlawful conduct by imposing a monetary penalty.” Ante at ___. Because “[p]enalties serve a law-en forcement function,” the Court asserts,17 allowing “spurious counterclaims” would “sever ely undermine their effectiveness” and “would interfere with the state’s abil ity to enforce its laws.” Id. at ___. 18
The Court’s law-enforcement rationale is unfoun ded. First, the State highlights that, when it acts in a law-enforcement capacity, it necessarily is not acting as an “ordinary litigant” as Reata requires. But the State’s argument mischaracter izes our description of the government as an “ordinary litigant” in Reata . We used the term in explaini ng that once the government “asserts affirmative claims for monetary recovery, [it] mu st participate in the litigation process as an ordinary litigant, save for the limitation that [i t] continues to have immunity from affirmative damage claims against it for monetary relief exceed ing amounts necessary to offset [its] claims.”
Reata , 197 S.W.3d at 377. We did not hold that the Reata rule applies only if the government is participating in litigation as an “ord inary litigant”; rather, we held that when the Reata rule applies the government must participate as an “ordinary litigant.” Id. This is consistent with the wellrecognized principle that our proced ural and evidentiary rules apply to the State as they would to any other litigant when it appears in court. See State v. Naylor , 466 S.W.3d 783, 792 (Tex. 2015) (“[W]here the Legislature has give n no indication to the contrary the State must abide by the same rules to which private litigants are beholden.”). These references to the State as an “ordinary litigant” do not address the sovereign-immunity question of whether the St ate may be required to appear in court. Nothing in Reata ’s text or reasoning limits its application to cases in which the State appears as an “ordin ary litigant,” as opposed to “enforcement actions.” See Reata , 197 S.W.3d at 376 (discussing Kinnear v. Tex. Comm’n on Human Rights , 14 S.W.3d 299, 300 (Tex.

18 The Court’s reference to “spurious counterclaims” is curious, as it implies a c onnection between a claim’s merits and the government’s immunity. Whether the government is immune from suit has nothing to do with the strength or weakness of the claims asserted against it.18 2000) (holding that the State was not immune from a counterclaim for attorney’s fees in an enforcement action under the Texas Fair Housing Act)). Second, a law-enforcement ex ception would swallow the Reata rule. The Cour t gives little guidance on how to determine wh ether the State is acting in a “law-enforcement” capacity as opposed to an “ordinary litigant,” other than to state that the exception applies “when the state seeks to impose a monetary penalty to enforce a substantive prohibition against unlawful conduct” and that “action is punitive rather than compensatory.” Ante at ___. But the Court’s new rule obfuscates over a century of our sovereign immun ity jurisprudence. As previously noted, our precedent before and after Reata unequivocally involved “substantive” claims, both statutory and under the common law, and many invol ved the imposition of “penalties.” See, e.g. , Anderson, Clayton & Co. , 62 S.W.2d at 110 (“[T]he jurisdiction of the court cannot afterwards be defeated by the state upon a plea that the cross-petitioners were seeki ng an injunction against the enforcement of a penal statute.”). When any governmental body brings suit, it n ecessarily acts under its sovereign authority to police and enforce the laws of the State. See Reata , 197 S.W.3d at 384 (Bri ster, J., concurring) (“[W]hen governments bring suit, they must do so through agents who ultimately derive their authority from the Legislature. . . . But when they file suit on an affirmative claim, they must be doing so with legislative authorizat ion. If the rule were otherwise, it is not clear how a government could ever assert its own claims.”). The Cour t’s decision today throws what has been a well-19 settled doctrine into limbo b ecause almost any action brought by a governmental body arguably constitutes a “law-enforcement” action. 19 I see no principled basis for adopting the St ate’s position that the Medicaid Fraud Act enables it to bring a specialized law-enforcem ent action that justifies an exception to the Reata rule. By participating in the federal Medica id program and enacting the Act and its enabling regulations, the Legislature has al ready established a balanced stat utory scheme for protecting the public against fraud. Under federal law, a state must have a “Medicaid fraud control unit,” 42 U.S.C. § 1396a(a)(42)(B)(ii)(IV)(cc), which investig ates program violations and can refer matters for criminal prosecution or “t o an appropriate State agency ” for other action, 42 C.F.R. § 1007.11(b)(3) (2018). In Texas, such enforcemen t actions can take the form of criminal, 20 administrative, 21 and civil proceedings. 22 Here, if the State desired th e deference and protection of its sovereignty, it could have brought (and can stil l bring) a criminal action against the Providers in this case, subj ect to, of course, the corresponding burden of proof. Likewise , the State could (and did) bring an administrative action for sancti ons for the same alleged violations. The State

19 See, e.g. , T EX
. A G

. C ODE §§ 17.152, .153 (providing for civil action for actual damages, treble damages, and civil penalties, or action under the DTPA for failing to po st notice of fuel tax rates, or document or record those rates); T EX
. B US

. & C OM

. C ODE §§ 15.21 (providing that any “person or governmental entity” who is harmed by unfair trade practices under the Antitrust Act “shall recover” actual damages, interest, and treble damages), 17.953 (providing for the State’s recovery of restitution and civil penalties for violations of the Deceptive Trade Practices Act); T EX
. I NS

. C ODE § 541.151 (providing for civil penalties for unfair competition and deceptive act s in insurance industry); T EX
. O CC

. C ODE §§ 351.603, .604 (providing for civil penalties for violations of the Optometrists Act).
20 See T EX
. P EN
. C ODE § 35A.02(a)(1)–(12); see also T EX
. H UM
. R ES

. C ODE § 32.0391 (establishing a criminal offense for kickba ck and bribery schemes).
21 See T EX
. H UM
. R ES

. C ODE §§ 32.039 (outlining “Damages and Penalties” the State may seek in an administrative action against a provider accused of Medicaid fraud), 36.006 (“The application of a civil remedy under this chapter does not preclude the application of another co mmon law, statutory, or regulatory remedy, except that a person may not be liable for a civil remedy under this chapter and civil damages or a penalty under Section 32.039 if the civil remedy and civil damages or pe nalty are assessed for the same act.”).
22 See id. §§ 36.002 (defining “Unlawful Acts” relating to Medicaid fraud), .052 (establishing “civil remedies” and authorizing the State to initiate an action for civil remedies or an injunction under the Act).20 was certainly entitled to pursue this civil action in lieu of its nonsuite d administrative claims, see Albert , 354 S.W.3d at 375 (“Under litigation rules applicab le to ordinary litigants . . . the City was entitled to nonsuit its [claims].”), but “preve nting all offsetting claims” by creating a lawenforcement exception here “looks less like sove reign immunity than sovereign inequity,” Reata , 197 S.W.3d at 383 (Brister , J., concurring). D. Connected, Germane, and Defensive Nature of Counterclaims Finally, the Court concludes that Reata does not apply to the Providers’ counterclaims because they are not connected, germane, and pr operly defensive to the State’s Medicaid fraud claims. Considering the underlying allegations, the appropriate legal st andard, and the State’s burden on the merits, I cannot ag ree with this conclusion. Where, as here, a plea to the jurisdiction challenges the pleadings, we determine if the pleader has alleged facts that affirmatively demons trate the court’s jurisdiction to hear the cause. City of El Paso v. Heinrich , 284 S.W.3d 366, 378 (Tex. 2009). Whethe r a pleader has alleged facts that affirmatively demonstrate a trial court’s subject matter jurisdiction is a question of law reviewed de novo

. Tex. Dep’t of Parks & Wildlife v. Miranda , 133 S.W.3d 217, 226 (Tex. 2004). We must construe the pleadings liberally in fa vor of the nonmovant and look to the nonmovant’s intent. Heinrich , 284 S.W.3d at 378. We explained in Albert that counterclaims are “germane”—that is, “relevant”—to the government’s claims when they are based on the same question as the government’s claim, and are “properly defensive” when they “would at least inferentially rebut” the government’s allegations. 354 S.W.3d at 375. He re, the State claims that the Providers committed unlawful acts by submitting prior-authorization and post-trea tment-payment requests and then accepting21 payments even though the services they provided did not qua lify for reimbursement under the Medicaid program. The Providers’ breach of contract and conspiracy counterclaims are based on their allegations that th e State had an independent duty to de termine whether the patient qualified for the services, that the State (through and in conspiracy with its contractor, Xerox) failed to fulfill that duty, and that the Providers reasonably reli ed on the State’s decisions when providing the services. And the Providers’ conversion counterc laim is based on the Stat e’s continued retention of Medicaid funds under a payment hold initiated on the same allega tions, same facts, and same defendants as the State’s fa iled administrative cases. Unlike the Court, I conclude th at the counterclaims are relevant and defensive to the State’s claims. On the merits, the State must show th at the Providers acted “k nowingly” in undertaking the unlawful acts defined in the statute. See T EX
. H UM
. R ES

. C ODE § 36.002. The Providers allege that the State and Xerox conspired to mislead th e Providers into believi ng that their requests complied with the Program’s requirements. As th e Providers frame their complaint, “the State now seeks to recoup the payments that it made to the [Providers] after the [Providers] provided the very services the State had deemed to be medical ly necessary.” (Footnote omitted). Thus, contrary to the Court’s conclusion, the Provi ders’ allegations, if true, negate the State’s assertion that they knew the services submitted for reimbursement were not medically necessary, which is a material element of each of the State’s claims. These alle gations are clearly connected and relevant to the parties’ claims, and if the Providers are correct, their counterclaims will rebut the allegations on which the State’s claims are based. See State v. Martin , 347 S.W.2d 809, 814 (Tex. 1961) (“Appellee’s claim to recover the very money whic h the State seeks to reta in, the claim of each arising from the same single transaction between th e parties, could not be more closely related or22 more germane.”). Applying the appropriate sta ndard of review at this early stage in the proceedings, I must conclude that the Providers have met their burden of alleging facts overcoming the State’s assertion of immunity. III. Conclusion When we explained the limited scope of the government’s immunity against counterclaims
in Reata , we relied on the policies that justify the doctrine in the first instance. Because the Reata rule permits only germane and properly defensiv e counterclaims and permits relief only in the form of an offset against the government’s mone tary recovery, we concluded that it “would be fundamentally unfair to allow a governmental entity to assert affirmative claims against a party while claiming it had immunity as to the part y’s claims against it.” 197 S.W.3d at 375–76. For the reasons explained, I reach the same conclusion here and would hold that the State is not entitled to dismissal of the Providers’ counterclaims. Because the Court holds otherwise, I must respectfully express my dissent.

________________________________ Debra H. Lehrmann Justice

OPINION DELIVERED: June 22, 2018